In early May, cannabis professionals across the industry rejoiced at reports that the Drug Enforcement Administration (DEA) will reclassify cannabis to Schedule III.
In addition to leveling the playing ground for cannabis companies when it comes to taxation, reclassification also sends a clear message from the federal government: cannabis has confirmed, known medicinal value.
But what will Schedule III actually mean for cannabis? Earlier this month, Rootwurks held a webinar featuring economist and business analyst Andrew Livingston of the cannabis law firm Vicente LLP who broke down why reclassification is such a big deal for the cannabis industry.
Here are some of the main takeaways.
Schedule III won’t affect criminal penalties for cannabis
“Once cannabis is in Schedule III, it won’t change the criminal laws,” Livingston said, adding “if you’re in Idaho and you’re caught smoking weed and it's in Schedule I or it’s in Schedule III, it’s still a crime.”
Simply put, rescheduling won’t change the fact that cannabis is illegal on the federal level. If your state hasn’t legalized adult-use cannabis, you can still be arrested for simple possession even after cannabis is in Schedule III.
The end of 280E will be huge for cannabis
When cannabis is moved to Schedule III, the industry will no longer be subject to tax code 280E, which bans them from deducting business expenses from income associated with Schedule I and Schedule II substances.
It is hard to overstate the importance of this development.
“Even just [the removal of] 280E alone is a big deal for us,” Livingston said.
He added that the tax code is one of many “grossly unfair” conditions that the cannabis industry has had to deal with and that the removal of 280E will save the average cannabis company hundreds of thousands if not millions of dollars per year.
It’s about the abuse potential
Moving cannabis to Schedule III doesn’t only confirm that the federal government recognizes that cannabis has health benefits. It also says a lot about the perceived dangers of cannabis.
“Whether or not they're [drugs] in schedule two or they're in schedule four or five has to do with the risk and abuse potential.”
It’s about politics and culture - not science
The original decision to place cannabis in Schedule I was not one based on science.
“It’s a socio-political determination,” Livingston said, adding that the drugs in Schedule I have been there since the 1970s.
“It’s just a political decision. The hippies use these drugs and we need to make sure that the hippies go to jail.”
The pharmaceutical industry is unlikely to try to get a piece of the action
For decades there has been the perception that if cannabis is ever legalized on the federal level, the pharmaceutical industry will move in to dominate the industry. Livingston took issue with this perception.
He mentioned how for one, cannabis can’t be patented. Second, the most popular intake method is inhalation and it is unlikely that the FDA will approve any smokable medications.
“If there was a way for them [pharmaceutical companies] to take over the medical cannabis market, they would have done that over the past 10 years.”
Schedule III won’t change cannabis compliance
Like how Schedule III won’t affect state criminal laws for cannabis, it also won’t change who regulates the industry.
In legal cannabis states, it will still be the same state bodies that regulate the marijuana industry - which will still be illegal under federal law.
Schedule III should spur more investment in cannabis
In recent years, cannabis companies have faced serious difficulties trying to secure funding. Cannabis is a rather volatile business that, like 280E, faces a lot of hurdles that don’t exist in industries that are not illegal under federal law.
By removing 280E, the new classification could help cannabis companies get the funding they need.
“I think it will absolutely impact cannabis investment,” Livingston said, adding that rescheduling shows a more relaxed federal government approach to cannabis enforcement and that marijuana is becoming more normalized.”
When cannabis moves to Schedule III it will have a major impact on the industry, but there will be a long road ahead for full legalization. Still, as this month’s webinar on cannabis rescheduling proves, there is more than enough reason to be happy about this development.
Stream the recent webinar “What Will Schedule III Mean for Cannabis?” on the Rootwurks website here.
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